Mortgages

What is a mortgage?

If you wish to buy a home, it is likely you will need to borrow money to do this. A mortgage is a loan which is secured against the property. This means that, if you, as the borrower fail to keep up repayments or fails to comply with other terms and conditions of the mortgage agreement, the lender can take action to repossess the property. The person who borrows the money is known as the mortgagor and the lender is known as the mortgagee.

The mortgage will be for a fixed period of time. This is usually for 25 years, but can be for more or less time. However, it would rarely be less than 15 or more than 30 years. The borrower will be charged interest on the loan. The rate of interest will usually vary with national interest rates. The interest can be calculated on a daily, a monthly or an annual basis.

What can you get mortgages for?

It is usually possible to obtain a mortgage to purchase most types of houses and flats. However, it may be difficult to obtain a mortgage on some types of properties, for example:-

• a property in a poor state of repair or with serious structural problems. In this case the lender may agree to a mortgage but will withhold a certain amount until basic repairs and improvements have been done
• a houseboat or mobile home
• properties built with certain types of construction, for example, ex-public sector homes built with pre-reinforced concrete
• leasehold properties with only a short period of the lease left, especially where the period left is less than the term of the mortgage
• flats on the upper stories of tower blocks
• flats over shops, particularly food outlets.

Where can you get a mortgage from?

Mortgages can be obtained from a variety of sources, and lenders' policies vary greatly. For example, some lenders are more flexible than others or may be more willing to negotiate if a borrower has difficulties with repayment. It is therefore be vital for a borrower to investigate the range of options available before making any decision. The range of organisations offering mortgages includes:-

• building societies
• banks
• insurance companies
• builders of new properties. A builder may arrange mortgage assistance on a new home as part of a package which can, for example, include a fixed interest rate for the first year
• finance houses and credit companies
• mortgage brokers
• specialised mortgage companies.

Many lenders offer mortgages direct (often without providing advice as to what could be suitable for the borrower's needs), both over the telephone and on the Internet. This is usually done by asking the borrower a series of questions to find the loan best suited to her/him, and then completing an application form.

The Financial Services Authority (FSA) operates an independent on-line mortgage tables service. This enables anyone seeking a mortgage to browse and compare nearly 1,300 mortgages, to find one suited to their particular needs. The tables compare mortgages by a range of factors, including interest rates, fees and incentives and flexibility. The tables can be found on the FSA website, at www.fsa.gov.uk/tables. 

The majority of mortgage lenders are members of the Council of Mortgage Lenders (CML). Members should adhere to the CML code of practice. It is advisable to check whether a lender is a member of CML, as the you will have more protection if problems arise.